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“A failure of US
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05/2006
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“A failure of US and EU leadership”
Bilateral trade talks are undermining the multilateral World Trade Organisation (WTO), says economics professor Jagdish Bhagwati.
In his view, poor countries need to develop their own expertise on global issues for matters to improve.
[ Interview with Jagdish Bhagwati ]
Does the WTO provide adequate governance?
The WTO replaced the GATT, the General Agreement on Tariffs and Trade. It is a tripod resting on 3 legs:
- GATT, which dealt with manufactures,
- GATS, which deals with trade in services, and
- TRIPs, the agreement on trade related intellectual property protection.
The WTO is a strengthened institution. The GATT was only a default option, embraced because the International Trade Organization was not approved by the US Congress. The WTO provides substantially better governance than GATT did. It has replaced a non-functioning Dispute Settlement Mechanism where findings could be blocked by the defendant who had lost with one where findings are binding unless the winning plaintiff lets it go. The WTO is a Single Undertaking where members now have uniform, not optional, obligations. Furthermore, the WTO also has an excellent monitoring provision, the Trade Policy Review Mechanism.
Nonetheless, the USA and the EU are pursuing bilateral trade agendas. To what extent are they interested in a strong WTO at all?
This is a really important question. The United States has put its weight behind the Doha Round, so you could not say that it is not in favour of the WTO. But bilateral talks are not being pushed because of the much-asserted reason that the multilateral process is so slow. Suppose that the Doha Round was concluded tomorrow; would the US stop its energetic pursuit of bilaterals? Obviously not. This rhetorical question calls the bluff of the Americans – and the EU and any others who parrot this argument.
So what do the USA and the EU want?
Let’s look at the the USA. An important aspect is the power of its many lobbies acting in pursuit of all kinds of “trade-unrelated” agendas. In bilateral talks, with politically and economically insignificant countries, the domestic lobbies of the USA can push successfully for all kinds of extraneous demands while offering preferential market access to the USA. Controversial issues include labour standards! Bare in mind that the US has only 19% of its private-sector labour force in unions, and not because Americans prefer not to unionise. Another controversial matter is domestic pollution standards. But the US did not sign the Kyoto protocol and does not show much interest in international standards. Then there is the issue of intellectual property concessions, which, in my view, does not belong in the WTO context, since it should not be about collecting royalties. US lobbies are also interested in rules on the use of capital account controls in case of financial crises and other matters.
And smaller countries have no choice but to give in?
At a recent conference, I was not surprised to hear the relevant ministers of two large Asian countries say more or less that they would have to give in to American negotiators on these dimensions if they wanted a Free Trade Agreement with Washington. The game of the bilaterals is to take the developing countries one by one, and, in the long run, push into the WTO these extraneous issues as desired and defined by American lobbies, regardless of what the proper design of the WTO should be on analytically respectable grounds. The bilaterals game is not about liberalisation. President Lula da Silva of Brazil virtually said as much some weeks ago. He insisted that the Free Trade Agreement of the Americas (FTAA) address issues such as agricultural protection in the USA and the extreme use of anti-dumping measures which serve to exclude exports from the developing countries. But US diplomats dismissed Lula’s arguments as “FTAA-Lite”, when in fact that was FTAA-Right.
And the public in rich countries buys such distorted statements?
Astonishingly, the coverage even in the liberal media like the New York Times is so incompetent that it totally bypasses this important aspect of the FTAs. The media in the USA endorse FTAs as if they were genuine trade liberalisation. The “spaghetti bowl” problem is hardly ever mentioned, even though I’ve been highlighting it since the early 1990s: the proliferation of FTAs is indeed leading to a chaotic system. Officially, the WTO is based on the principle of non-discrimination. All members have to treat other members as they do the “Most Favoured Nation”. But this worthy principle has been virtually decimated. That this could happen is evidence of the failure of US and EU leadership. I have been writing about the nefarious purpose underlying FTAs pursued by hegemonic powers. But the developing countries have generally been complacent. They are like animals being blissfully led to their slaughter.
What must be done to enhance the role of the WTO?
The WTO functions on a starvation budget of $100 million annually. Its secretariat is understaffed and overextended, it needs to be strengthened. Otherwise, the WTO cannot play a leadership role. Currently, the trade agenda is often set by the World Bank instead, which, by the way, suffers from huge overstaffing. One reason for this situation is that the rich countries have effective control of the Bretton Woods institutions, whereas the WTO – just like the GATT before – is more democratic because of the consensus principle. The WTO even had a Director General who came from a developing country – Supachai Panichpakdi, a former Deputy Prime Minister of Thailand who had done his PhD in economics with Professor Tinbergen in Rotterdam.
But many skeptics in rich and poor countries alike believe that the WTO promotes the
interests of the advanced rather than the
disadvantaged countries.
WTO critics are misled when they scream in the streets. The bilaterals bypass the GATT, because the regulations of Article 24 dealing with regional free trade agreements are virtually ignored. Bilaterals are a dagger at the throat of poor countries. It is the multilateral WTO that would protect them. Because of the consensus principle, the poor countries do much better at the WTO than critics appreciate. Contrary to the assertions of Oxfam, Joseph Stiglitz and others, the GATT for decades did not extract obligations from poor countries. Rather, it extended all concessions rich countries made to one another to poor countries. In that sense, they had a free lunch. But of course, the rich countries often made concessions that focused on their own interests. Only when the poor countries began to make concessions in the Uruguay Round, could we successfully bring agriculture and textiles into the GATT/WTO. By the way, the neglect of agriculture since 1955 was entirely in keeping with what the governments of poor countries wanted. They hoped to industrialise, whereas the rich countries wanted to agriculturalise, relative to what freer trade would imply. The exclusion of agriculture from the GATT did not result from double standards, it was a Faustian bargain between poor and rich countries.
What will make matters improve? How can poor countries better assert themselves?
The benefits of trade and the pursuit of their own interests at the WTO will occur more effectively once the poor countries develop their own expertise and their own autonomous NGOs. India, for example, has almost 3 million NGOs, including important organisations that take an independent line. CUTS for instance does not share Oxfam’s stand on trade liberalisation. The Center for Science and Environment in Delhi has a different view on trade sanctions than does the Sierra Club, an important environmental lobby in the USA. Developing countries need more such experts instead of listening to financially rich but intellectually poor NGOs like Oxfam and a couple of maverick economists like Joseph Stiglitz and Dani Rodrik who thrive on being “dissidents” from the expert consensus.
Questions by Hans Dembowski.
Prof. Dr. Jagdish Bhagwati
teaches economics at Columbia University, New York.
jb38@columbia.edu
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